Though Malaysia maintained its position as third-most preferred location for global services, after India and China, in AT Kearney's 2009 Global Services Location Index (GSLI), the country must remain wary of up-and-coming regional rivals, said a government official.
In the latest rankings, Thailand maintained its fourth place, Indonesia moved up one spot to fifth while the Philippines climbed up a notch to seventh. The biggest Asian mover was Vietnam, which catapulted into 10th position from 19 in 2007. Jordan entered the Top 10 at ninth, up from 14 in the previous index.
The GSLI analyses and ranks the top 50 locations for outsourcing activities, including IT services and support, contact centers and backoffice support. The index was last updated in 2007.
While India, China and Malaysia retained the top three spots they have occupied since the inception of the GSLI in 2004, a fundamental shift in the index has taken place, where once-strong Central European countries have now yielded ground to countries in Asia, the Middle East and North Africa.
Established Central European countries including Poland, the Czech Republic, Hungary and Slovakia, were once among the premier offshoring destinations for Western European companies, but have fallen in favor significantly due to a rapid increase in costs driven by wage inflation and currency appreciation against the U.S. dollar, said AT Kearney.
Joon Ooi, a partner with AT Kearney and managing director of the firm's Southeast Asia unit, said: "Meanwhile, low-cost countries in Southeast Asia and the Middle East made significant gains this year as the quality and availability of their labor forces improved. Egypt, Jordan and Vietnam ranked in the GSLI's top 10 for the first time ever."
The top three countries--India, China and Malaysia--continue to lead the index by a wide margin through a unique combination of high-skills people, favorable business environment and low cost, Ooi said during a media briefing here Thursday.
Malaysia, which provides "outstanding value" coupled with a stable environment and availability of good human capital, has made good improvements in its score on people skills and availability since 2004, Ooi said at a press conference here Thursday.
Its neighbor, Singapore, did not fare as well, dropping to 35 from its previous 11th placing. The drop was primarily the result of rising costs due to the strengthening Singapore dollar, compared to other regional currencies, Ooi said. Providing attraction to MNCs
Malaysia's Multimedia Development Corporation (MDeC) CEO Badlisham Ghazali said MSC Malaysia has always been strategically positioned to offer the best to attract multinational companies into the country.
Formerly dubbed Multimedia Super Corridor, MSC Malaysia is a government-designated zone that houses technology companies--much like Silicon Valley in the United States.
Badlisham said the availability of skilled workers, competitive cost and ideal business environment, are incentives for companies to choose Malaysia for their shared services and outsourcing (SSO), as well as offshoring activities.
However, he said Malaysia cannot afford to rest on its laurels.
"Obviously our goal is to move up to the No. 2 spot, but we must also be conscious of those below us [in the rankings] that are trying to catch up with us," he noted. "We need to move up the SSO value chain in order not to be overtaken by other lower-cost countries."
Badlisham said the outsourcing industry was the biggest contributor to revenue generated by companies in MSC Malaysia, accounting for some 5.34 billion ringgit (US$1.52 billion), or 31.27 percent of total revenue in 2007.
There are 179 SSO companies that were awarded MSC-status, 163 of which remain operational today.
MSC-status companies employ a total of 79,000 knowledge workers, and this number is expected to increase to 100,000 by 2010. The SSO sector is the biggest source of employment in MSC Malaysia, accounting for 32,500 jobs, said the MDeC, which oversees the ICT hub.